Confronting our own mistakes in judgment is painful. It is one reason we rationalize. Rationalization can, however, alter our interpretation of facts and lead to ineffective decisions. Rationalization is one of the powerful unconscious forces that can drive you towards behavioral investing.
Understanding why we rationalize is called Motivated Reasoning. It suggests that the brain works to satisfy two distinct functions simultaneously, analytic thinking and emotional thinking. Together, the functions reflect our beliefs, biases, and desires.
This essay discusses rationalization, motivated reasoning and five simple ideas for greater self-awareness.
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